Smart Money Matters: Gifting Techniques for the Savvy Taxpayer

In this first comment in a series we call "Smart Money Matters," Senior VP and Portfolio Manager Richard Bean provides his thoughts on strategies to help optimize your charitable giving and tax benefits, in light of the recent changes in tax law.

The recent changes to the tax law have created an environment where many more taxpayers, particularly retirees, find it advantageous to claim the higher standard deduction rather than itemizing deductions. If you claimed the standard deduction in 2018 and also made charitable contributions, you have effectively given away the charitable deduction. You would receive the same standard deduction regardless of your charitable activity. Granted, tax deductions are not the primary reason to contribute to charities, but it is a nice side benefit. Altering your approach to charitable giving may make it possible for you to benefit from the higher standard deductions and receive tax benefits for your charitable gifts.

The standard deduction nearly doubled from tax year 2017 to 2018 and will inch up even higher in 2019. The standard deduction in 2019 is $12,200 for single filers and $24,400 for married filing jointly. You also receive a standard deduction boost if you are age 65 or over – an additional $1,650 for single and $1,200 for married.

These substantially higher standard deductions along with the $10,000 limit for deductions of state and local taxes, and the elimination of exemptions now make the standard deduction more attractive than itemizing deductions for many. If you are charitably inclined and accustomed to making annual gifts to charities and religious organizations, you might benefit from bunching your gifts.

Bunching Annual Gifts

Rather than making your normal annual gifts and taking the standard deduction, consider bunching two or more years’ worth of gifts into one tax year so that your itemized deductions will exceed the standard deduction in that tax year. You will lower your tax burden even further in the year you make the bunched gifts, and you can claim the standard deduction in the interim years between gifts.

You can also alert the charities and religious organizations about your new gifting strategy with changes in frequency and size of gifts. Most organizations will work with you to maintain an annual recognition level if that is important to you.

The next article in this series will discuss additional techniques for bunching gifts for tax purposes while also maintaining a steady flow of annual contributions to the charitable organizations that you support. We will also explore how taxpayers over age 70 ½ have additional opportunities for increasing the tax benefit of charitable contributions.

In the meantime, please contact CornerCap is you are interested in learning more about how you might benefit from rethinking your charitable gifting strategies.